Median household income 2021534 224505396 2008-07-09T03:59:51Z 67.70.31.90 /* Median household income and the economy */ The '''median household income''' is commonly used to provide data about geographic areas and divides households into two equal segments with the first half of [[household]]s earning less than the [[median]] household income and the other half earning more.<ref name="US Government, the different between mean and median">{{cite web|url=http://www.business.gov/topics/research_resources/market_research/census_bureau_faq.html|title=US Government, the different between =2006-06-29}}</ref> The median income is considered by many [[statisticians]] to be a better indicator than the [[average]] household income as it is not dramatically affected by unusually high or low values."<ref name="US Census Bureau on the nature the median in determining wealth">{{cite web|url=http://www.census.gov/prod/2003pubs/p70-88.pdf|title=US Census Bureau on the nature the median in determining wealth|accessdate=2006-06-29}}</ref> {{cquote| [[Median]] income is the amount which divides the [[income distribution]] into two equal groups, half having income above that amount, and half having income below that amount. [[Mean]] income ([[average]]) is the amount obtained by dividing the total aggregate income of a group by the number of units in that group. The means and medians for households and families are based on all households and families. Means and medians for people are based on people 15 years old and over with income.<br>-US Census Bureau, Frequently Asked Question, published by First Gov."<ref name="US Government, the different between mean and median">{{cite web|url=http://www.business.gov/topics/research_resources/market_research/census_bureau_faq.html|title=US Government, the different between mean and median|accessdate=2006-06-29}}</ref> }} Household income is not to be confused with family or [[Personal income in the United States|personal income]]. Household income is often the combination of two income earners pooling the resources and should therefore not be confused with an individual's earnings. Even though the term family income may sometimes be used as a synonym for household income, the US Census Bureau defines the two differently. While household income takes all households into account, family income only takes households with two or more persons related through blood, marriage or adoption into account. ==International statistics== Median household income for selected countries is shown in the table below. The data for each country has been converted to US dollars using [[purchasing power parity]] (PPP) (obtained from the [[Organisation for Economic Co-operation and Development]]).<ref name="OECD, PPP conversion rates">{{cite web|url=http://www.oecd.org/dataoecd/61/56/1876133.xls|title=OECD, PPP conversion rates|accessdate=2006-01-20}}</ref> Note that PPP-adjusted household income is not reflective of relative buying power (or prosperity) between countries because different governments subsidize different services (see Common Misunderstandings section). {{International median household income}} == Median household income and the economy == Achieving real gains in household income can be very difficult. Since 1980, US [[gross domestic product]] (GDP) per capita has increased 67%[http://www.imf.org/external/pubs/ft/weo/2007/02/weodata/weorept.aspx?sy=1980&ey=2006&scsm=1&ssd=1&sort=country&ds=.&br=1&c=111&s=NGDPRPC&grp=0&a=&pr.x=90&pr.y=16], while median household income has only increased by 15%. An economic [[recession]] will normally cause household incomes to decrease, often by as much as 10% (Figure 1). Median household income is a politically sensitive indicator. Voters' can be critical of their government if they perceive that their [[cost of living]] is rising faster than their income. Figure 1 shows how US incomes have changed since 1970. The last recession was the [[early 2000s recession]] and was started with the bursting of the [[dot-com bubble]]. It affected most advanced economies including the European Union, Japan and the United States. Many economists are concerned that [[recession of 2008 | another recession]] may be imminent. The current crisis began with the bursting of the [[United States housing bubble|US housing bubble]], which caused a problem in the dangerously exposed [[subprime mortgage crisis | subprime mortgage market]]. This in turn has triggered a global [[financial crisis]]. American household incomes have only recently recovered from the [[early 2000s recession]] (see Figure 1). The threat of another recession has caused confidence to plunge to record lows, with polls showing that 81% of Americans believe that the [[United States]] is heading in the wrong direction [http://www.prweekus.com/Most-Americans-think-US-is-heading-in-the-wrong-direction/article/108689/]. [[Image:US Real Median household Income.PNG | 800 px]] The relationship between economic activity and household income varies substantially from country-to-country. Consider the situation of [[Equatorial Guinea]], a small African oil state with one of the world's highest GDP per capita (US$50,200). Equatorial Guinea's GDP per capita is 50% higher than Australia's, yet life expectancy in Equatorial Guinea is less than 50 years and most of their citizens live in abject poverty, the vast majority subsisting on less than $1 per day. {| class="wikitable" |- ! ! [[Equatorial Guinea]] ! [[Australia]] ! [[Iraq]] (war torn) |- | GDP per capita (PPP) | $50,200 | $33,300 | $1,900 |- | Biggest [[export]] | Oil | Coal | Oil |- | [[Life expectancy]] | 49.5 | 80.6 | 69.3 |- | [[Infant mortality]] | 87 | 5 | 47 |} Equatorial Guinea is corrupt country, which helps explain why the normal people are not benefiting from the oil wealth. However this issue isn't just about corruption. A comparison between median household income and GDP per capita for advanced countries is shown in Figure 2. These countries do not have serious corruption problems and yet there is only a weak correlation (R=0.16) between the two indicators. Showing that even when comparing advanced countries, differences in economic activity do not have a predictable effect on household income. '''Figure 2''' [[Image:International Median Household Income.png ]] ''Source: IMF GDP per capita[http://www.imf.org/external/pubs/ft/weo/2007/02/weodata/weorept.aspx?pr.x=54&pr.y=9&sy=2003&ey=2007&scsm=1&ssd=1&sort=country&ds=.&br=1&c=193%2C158%2C122%2C542%2C124%2C137%2C156%2C138%2C423%2C196%2C128%2C142%2C172%2C182%2C132%2C576%2C134%2C961%2C174%2C184%2C532%2C144%2C176%2C146%2C178%2C528%2C436%2C112%2C136%2C111&s=PPPPC&grp=0&a=] '' == Common misunderstandings == There is a common misunderstanding that [[GDP per capita]] can be used to predict median household income. For example, Ireland and the United States have a similar GDP per capita, from this people sometimes assume that their household incomes are also similar, when in reality US incomes are much higher when adjustments for [[purchasing power parity]] are made. The main reason for the disparity is that household consumption only makes up about 43% of Ireland's GDP, whereas household consumption makes up about 67% of America's GDP[http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-CD-06-001-04/EN/KS-CD-06-001-04-EN.PDF]. It is also erroneous to use PPP-adjusted household income as the sole metric to compare actual household relative prosperity/buying power across countries. That's because different governments subsidize different services. So, for example, in the US, many individuals are responsible for paying their own medical costs (or premiums) whereas the UK, Canada and other countries provide national health care for free. Some countries also subsidize education differently. So the effective buying power, even of $1 of PPP-adjusted income, is very different. As an example, if both a US household and a Canadian household make $10,000 in PPP-adjusted household income, the median Canadian household is actually better off based on median spending on healthcare in the US (which is absent in Canada since national health care is provided to all citizens for free). Another misunderstanding is the idea that if the economy is growing (GDP growth) then household incomes are also growing. In reality economic growth doesn't necessarily equate to growth in median household income. For example the US economy grew 8% over the 2000-2006 period but median household income actually fell 2%. A strong economy with a high GDP per capita is a key requirement to deliver prosperity to the people, but it is not the only requirement. So in a sense GDP per capita is an indirect indicator of prosperity, whereas median household income is a more direct measurement, albeit still inaccurate because of differences in government subsidies of essential services such as health care and education. ==See also== {{Demographics of the United States}} *[[Household income in the United States]] *[[Median household income in Australia and New Zealand]] *[[Income quintiles]] *[[Poverty in the United States]] *[[Income distribution]] *[[Median]] ==References== {{reflist|2}} ==Related links== *[[Places in the United States with notable demographic characteristics]] [[Category:Income in the United States]]